July 12, 2012 Newsletter

Dear Friends,

Tangents:

I was reading The MoneyLetter (June 2012 edition) this morning and the first article, entitled The Berkshire Prescription, is a commentary on the most recent Omaha meeting, which is annually hosted by Warren Buffe and his long-time vice-chairman, Charlie Munger, two octogenarians – 82 and 88 respectively – whose record of investment wealth creation is unsurpassed.  A few choice Buffet quotes are worth remembering at this time, since the media has everyone so focused on the misperception of the negative implications for the entire world capital markets as a result of current events.

-from Mr. Buffett:

“The best thing that happens to us is when a great company gets into temporary trouble….We want to buy them when they’re on the operating table.”

“Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.”

“I never attempt to make money on the stock market.  I buy on the assumption that they could close the market the next day and not reopen it for ten years.”

“I will tell you how to become rich.  Close the doors.  Be fearful when others are greedy.  Be greedy when others are fearful.”

I had the happy experience of visiting one of my long-time clients this afternoon – he is 88 years young – at his Amica retirement residence in order to review his portfolio with him.  I was able to show him  that the dividend income being generated on his portfolio is 5%/year (versus 1.6%/year on 10-year bond yields).  Moreover, his portfolio has significantly increased in value in the 23 years since he began investing with me, by following the Buffett wisdom in which I so strongly believe and base my strategy for investing – value investing.

How much wine for a cow?

“French cows are enjoying up to two bottles of high quality wine every day as farmers attempt to produce the best beef in Europe,” reports The Daily Telegraph.  “The extraordinary development has seen a ‘Vinbovin’ label of meat established which is already being championed by some of the best restaurants in Paris.  It follows an experiment in LunelViel, in the southern Herault region of France, which saw three cows fed local wine for four months.  Jean-Charles Tastavy, who came up with the idea, said the two Angus and one Camargue were initially fed the wine in a mix of barley, hay and grapes.  It soon became clear that they were ‘happy cows’ who ended up producing an exceptionally succulent meat.  Outlining how he encouraged the cows to enjoy a tipple, Mr. Tastavy said: ‘for each animal, alcohol intake should be equivalent to the amount recommended by health authorities for a man – namely two or three glasses of wine a day.  In the case of cows, this amounts to between a litre and a litre-and-a-half a day.’”

fromThe Globe & Mail, 7/12/12

And on this day in…

1817 – Henry David Thoreau was born.

1895 – Buckminster Fuller was born.

1937 – Bill Cosby was born.

1954 – President Dwight D. Eisenhower proposes a highway modernization program, with costs to be shared by federal and state governments.
1957 – The U.S. surgeon general, Leroy E. Burney, reports that there is a direct link between smoking and lung cancer.
1974 – G. Gordon Liddy, John Ehrlichman and two others are convicted of conspiracy and perjury in connection with the Watergate scandal.
1984 – Democratic presidential candidate Walter Mondale chooses Geraldine Ferraro as his running mate.

I frequently tramped eight or ten miles….to keep an appointment with a beech tree or a yellow birch or an old acquaintance among the pines.  –H. D Thoreau, 1817-1862.

photos of the day July 12, 2012

US Olympian sprinter torchbearer Michael Johnson holds the Olympic Flame at Stonehenge, England.

Danny Lawson/LOCOG/AP

Bees collect pollen from flowers in Matthews, N.C.

Chuck Burton/AP

Market Closes for July 11, 2012:

North American Markets

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Katia Dmitrieva

July 12 (Bloomberg) — Canadian stocks fell as banks and commodity producers slumped amid concern the global economic recovery is slowing down.

Canadian Natural Resources Ltd. and Suncor Energy Inc., two of the nation’s largest energy providers, each declined 1.4 percent. Goldcorp Inc. lost 0.4 percent as the metal slipped on the Comex for the third day. Royal Bank of Canada, the nation’s largest lender, fell 1.2 percent. Bank and energy stocks were the biggest drag on the Standard & Poor’s/TSX Composite Index, with all 10 industries falling.

The S&P/TSX slumped 119.17 points, or 1 percent, to 11,425.47, after rising 0.3 percent yesterday. The benchmark index has dropped 4.4 percent in 2012.

“You can see how sentiment is very negative right now,”

Jason Hornett, who co-manages C$250 million for Calgary-based Bissett Investment Management, said in a phone interview.

“We’re going to feel the pain in energy and materials stocks more than the U.S. equity indexes because we have more exposure.”

Global equities fell amid further signs that the economic recovery is faltering. Bank of America Corp. strategists reduced earnings estimates for S&P 500 companies for this year and next, citing Europe’s debt crisis and slowing growth in China. Data due tonight may show China’s economic growth fell below 8 percent for the first time since 2009, according to the median estimate in a Bloomberg News survey.

Royal Bank of Canada fell 1.2 percent to C$52.18. Toronto- Dominion Bank, the second-largest, dropped 0.7 percent to C$79.25. Bank of Nova Scotia slipped 1.4 percent to C$52.32.

Goldcorp dropped 0.4 percent to C$33.68, falling for a sixth day. Barrick Gold Corp. retreated 1.4 percent to C$35.17 for a seventh straight session of declines, its longest losing streak since March. Eldorado Gold Corp., a Vancouver-based gold miner with projects in Brazil, China, Turkey and Greece, slipped 3.4 percent to C$10.94.

Semafo Inc., a Quebec-based gold mining company with projects in West Africa, plunged 22 percent to C$3.39, the most since 2002, after the company announced an increase in reserves and resources. Royal Bank of Canada analyst Jonathan Guy said the update “fails to impress,” and BMO Capital Markets analyst Andrew Breichmanas downgraded the stock from outperform to perform.

Energy stocks declined as crude swung between gains and losses, turning positive after the U.S. announced more sanctions on Iran. Suncor slipped 1.4 percent to C$28.85. Canadian Natural Resources lost 1.4 percent to C$26.10.

Calvalley Petroleum Inc., a company that explores for oil and natural gas in Ethiopia and Yemen, tumbled 17 percent to C$2.12 as DNO International ASA dropped its bid to purchase the company.

US

By Lu Wang and Nikolaj Gammeltoft

July 12 (Bloomberg) — U.S. stocks retreated, sending the Standard & Poor’s 500 Index to the longest slump since May, as concern intensified about a slowdown in the global economic recovery and American corporate earnings.

Equities pared earlier losses as Procter & Gamble Co. and Merck & Co. rallied more than 3.7 percent, while an S&P index of homebuilders jumped 2.4 percent. Bank of America Corp. and Morgan Stanley slipped at least 1.9 percent, pacing declines among banks. Supervalu Inc. sank 49 percent after the third- largest U.S. grocery chain said it will review strategic alternatives for the business and suspended its dividend.

The S&P 500 slid 0.5 percent to 1,334.76 at 4 p.m. New York time, paring a drop of as much as 1.2 percent. The benchmark index for American equities retreated for a sixth straight day, losing 2.9 percent over the period. The Dow Jones Industrial Average fell 31.26 points, or 0.3 percent, to 12,573.27, after losing more than 112 points. Volume for exchange-listed stocks in the U.S. was 6.5 billion shares, 3.3 percent below the three- month average.

“There’s a worldwide slowdown,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a phone interview. The firm oversees $40 billion. “Wall Street analysts have been reducing their second- quarter earnings estimates as companies have guided them lower.

Profit growth, which has been a main driver for the market, will be less supportive going forward.”

The S&P 500 closed little changed yesterday as investors sifted through minutes of last month’s Federal Reserve meeting for hints of additional stimulus. The Federal Open Market Committee’s June 19-20 meeting debated the need for further stimulus measures, the minutes showed. Two participants supported additional bond purchases, while two others said only a further deterioration in the economy would warrant them.

Equities remained lower earlier today as Labor Department figures showed applications for first-time claims declined last week more than economist forecast. The decrease reflected the volatility of claims during the annual auto-plant retooling period. In Asia, the Bank of Korea unexpectedly cut its key interest rate. Data due out tonight may show China’s economic growth fell below 8 percent for the first time since 2009, according to the median estimate in a Bloomberg News survey.

The S&P 500 pared losses in the afternoon, rebounding after dipping below its 50-day moving average for a third day.

“Technicals may be a contributing factor,” Ryan Larson, Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., wrote in an e-mail. His firm oversees $250 billion in assets. “It does appear that the market is somewhat backstopped from any meaningful losses on hopes of further central bank intervention, specifically from the Fed.”

Bank of America strategists lowered their earnings forecasts for S&P 500 companies by 1.4 percent for this year and next year, citing falling commodity prices and slower global growth prospects. Strategists Dan Suzuki, Savita Subramanian and Jill Carey now project earnings of $102 per share for 2012 and $109 for 2013, according to a note to clients today.

Analysts surveyed by Bloomberg project that earnings decreased 1.8 percent in the second quarter, the first drop in almost three years.

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., told CNBC that economic growth in the U.S. is slowing even as the housing market shows signs of rebounding.

“The general economy in the United States has been more or less flat, and so the growth has tempered down,” he said today in an interview with the television station from Sun Valley, Idaho. Buffett’s remarks contrast with his comment a year ago to Bloomberg Television’s Betty Liu in Sun Valley that the economy and jobs will “come back big time” when residential construction recovers. U.S. unemployment has exceeded 8 percent for more than three years.

An S&P index of homebuilders rose 2.4 percent. Lennar Corp. jumped 3.6 percent to $31.06. PulteGroup Inc. gained 2.9 percent to $10.84, while D.R. Horton Inc. added 2.7 percent to $18.37.

Equities also pared declines as P&G rallied 3.8 percent to $63.70. The Federal Trade Commission cleared William Ackman’s Pershing Square Capital Management LP to buy a stake in the world’s largest consumer-products company. Ackman said the stake is the firm’s “largest initial investment ever.” His interest may signal more pressure for asset sales from P&G, which sold its Pringles snacks unit to Kellogg Co. for about $2.7 billion earlier this year, according to Louis Meyer, a special- situations analyst at Oscar Gruss & Son Inc.

Merck rose 4.1 percent, the most in the Dow, to $42.91. An advisory panel recommended closing the Phase 3 clinical trial of an experimental therapy to prevent bone fractures in women with osteoporosis early “due to robust efficacy and a favorable benefit-risk profile,” Merck said.

McDonald’s Corp. advanced 2.7 percent to $91.93. Sales at the world’s largest restaurant chain probably “meaningfully” beat even the highest analyst estimate, Mark Kalinowski, an analyst with Janney Montgomery Scott LLC said, citing checks with franchisees.

Seven out of 10 groups in the S&P 500 retreated, as technology and financial companies lost more than 1 percent. The Morgan Stanley Cyclical Index of companies most-tied to the economy erased 0.9 percent.

Financial stocks dropped as European lenders fell. Bank of America lost 2 percent to $7.48. Morgan Stanley retreated 1.9 percent to $13.55.

JPMorgan Chase & Co. slid 1.6 percent to $34.04. Investors will look for Chief Executive Officer Jamie Dimon to restore confidence when the company reports second-quarter results tomorrow. The bank may say profit fell 40 percent to 76 cents a share, excluding accounting adjustments, according to the average estimate from analysts in a Bloomberg survey. JPMorgan shares have dropped 16 percent since May 10, when the company disclosed a $2 billion loss on credit derivatives.

Lexmark International Inc. slumped 7.5 percent to $24.31, leading losses among technology shares. Benjamin Reitzes, an analyst with Barclays Plc, cut the maker of laser and inkjet printers to underweight, an equivalent of sell, citing a slump in corporate spending as more workers use mobile devices. The stock was previously rated equalweight.

Supervalu tumbled 49 percent to $2.69. The company, which last month announced layoffs in its Albertsons unit in California and Nevada, plans to accelerate price reductions and cut costs by an additional $250 million over the next two years, it said in a statement yesterday. It has retained Goldman Sachs Group Inc. and Greenhill & Co. to review its options, it said.

Safeway Inc., the second-largest U.S. grocer, slumped 13 percent, the most in the S&P 500, to $15.73. Kroger Co., the biggest, sank 3.7 percent to $21.96.

Marriott International Inc. slid 6.4 percent to $35.58 as the hotel operator reduced its projections for revenue growth per available room outside North America. Starwood Hotels & Resorts Worldwide Inc., owner of the luxury St. Regis and W brands, retreated 5.3 percent to $48.66.

Airlines fell as Goldman Sachs Group Inc. said analysts’ estimates for the industry are “too optimistic.” Tom Kim, an analyst with Goldman Sachs, rated Delta Air Lines Inc. and United Continental Holdings Inc. sell in new coverage, saying the two companies are most vulnerable to earnings pressure.

Delta Air fell 3.1 percent to $10.75 while United Continental slipped 4.1 percent to $23.78.

Sears Holdings Corp., controlled by hedge-fund executive Edward Lampert, declined 5.1 percent to $53.48. The retailer’s same-store sales probably dropped 5 percent for the second quarter, accelerating from a 1 percent decrease in the previous three months, Cleveland Research said, citing channel checks.

Have  a wonderful evening everyone.

Be magnificent!

The human voice can never reach the distance

that is covered by the still small voice of conscience.

-Mahatma Gandhi, 1869-1948

As ever,

Carolann

The friend in my adversity I shall always cherish most.  I can better trust those who helped to relieve the gloom of my dark hours than those who are so ready to enjoy with me the sunshine of my prosperity.

-Ulysses S. Grant, 1822-1885

Carolann Steinhoff, B.Sc., CFP, CIM, FCSI

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7

Tel: 778.430.5808

(C): 250.881.0801

Toll Free: 1.877.430.5895

Fax: 778.430.5838

www.carolannsteinhoff.com